Daulatrao Shankarrao Thakare v. The Divisional Joint Registrar

1. Rule. Rule made returnable forthwith and heard finally with consent of the parties. 2024:BHC-AS:30921

2. By this Petition, the challenge is to the order dated 27th January, 2023 passed by the Divisional Joint Registrar rejecting the Revision Application as not maintainable by holding that the auditor’s report under Section 81(1)(a) of The Maharashtra Co-operative Societies Act, 1960 (MCS Act) is not a decision or order and thus, revision under Section 154 of MCS Act is not maintainable.

3. The only issue arising for consideration is whether the Auditor’s report under Section 81 of MCS Act is revisable under Section 154 of MCS Act.

4. The facts required to be exposited is that vide order dated 31st March, 2022 passed under Section 102(2) of MCS Act, the District Deputy Registrar passed an interim order of liquidation and liquidator came to be appointed on Janta Nagari Sahakari Pathsanstha Ltd. (Panthsanstha). By order dated 6th May, 2022 the District Deputy Patsanstha for the years 2019-2020 to 2021-2022 under Section 81(1) (a) of MCS Act as it was held that despite communications, the Pathsanstha had not conducted the audit. Pursuant thereto, audit was conducted and the audit report was submitted on 16th September, 2022 concluding that the managing committee members and other office bearers have accepted deposits beyond the permissible limits by luring depositors with higher rate of interest and have thereby cheated the depositors on large scale and are liable to face a criminal prosecution. Pursuant to the finding given by the auditor, FIR bearing Crime No. 302 of 2022 was registered against the Managing Committee Members under IPC and under Section 3 and 4 of the Maharashtra Protection of Interest of Depositors (In Financial Establishments Act, 1999).

5. The auditor’s report dated 16th September, 2022 came to be challenged by way of Revision Application under Section 154 of the MCS before Divisional Joint Registrar who dismissed the Revision Application for the reason that the Auditor’s Report is not a decision or order.

6. Heard Mr. Patil learned counsel for the Petitioner and Ms. Gavhane learned AGP for the State.

7. Mr. Patil, learned counsel for the Petitioner has taken this Court to the provisions of Section 81 of MCS Act and would submit that under sub section 6 of Section 81 of MCS Act, the Registrar has the power to direct re-audit of any accounts of Society and the provisions of Act applicable to the audit of the account shall apply to such reaudit. He submits that Section 82 of the MCS Act would be applicable and if any, defects are disclosed as result of the audit held under Section 81, the Society is to be given an opportunity of rectifying the defects and to remedy the irregularities. He submits that such an opportunity was not given to the Society of which the Petitioner was an office bearer and thus, the Revision Application came to be preferred under Section 154 of the MCS Act as there is no remedy of Appeal under Section 152 of the MCS Act. He submits that the audit report culminated into a decision that the depositors have been cheated and that the Petitioner is liable to face criminal prosecution and thus, satisfies the requirement of decision or order. He would further point out that under Section 154 of the MCS Act, the proceeding wherein decision has been taken and in the present case, pursuant to the audit inquiry, decision has been taken by the auditor and therefore, the revision under Section 154 of the MCS Act was maintainable.

8. Per contra, learned AGP would submit that auditor has pursuant to the directions under Section 81(1)(a) of MCS Act conducted the audit and no order has been passed and thus, in the absence of any decision or order, the provisions of Section 154 of the MCS Act are not applicable.

9. Considered the submissions and perused the record.

10. The facts are not disputed that an audit was ordered by the District Deputy Registrar under the provisions of Section 81(1)(a) of the MCS Act. The audit was duly conducted and the Auditor has arrived at a conclusion that the depositors of the Panthsanstha have been cheated and there is necessity of initiating criminal proceedings against the concerned office bearers of the Panthsanstha. No opportunity was given to the Society or the Petitioner to tender any explanation in respect of the irregularities and FIR has been lodged against the Petitioner and others.

11. It will be apposite to refer to the relevant provisions of MCS Act. Section 81 (1) (e) of MCS Act provides that in case of financial irregularities, the auditor shall investigate and report the modus operandi, the entrustment and amount involved. The proviso to Section 5B of Section 81 of MCS Act provides that where the auditor comes to a conclusion in his audit report that any person is guilty of any offence relating to the accounts or any other offences, a specific report is required to be filed and the auditor concerned shall after obtaining permission of the Registrar file a First Information Report and if the Auditor fails to do so, the Registrar shall cause a First Information Report to be filed.

12. Reading of the above stated provision will indicate that in event the Auditor comes to a conclusion that any person is guilty of any offence relating to accounts which is detected during the conduct of audit, duty is cast upon the auditor to set the criminal law in motion. Section 82 of MCS Act gives an opportunity to the Society to explain to the Registrar the irregularities pointed out by the Auditor. In the instant case, the Auditor has arrived at a conclusion that the office bearers of the Panthsanstha are guilty of falsification of accounts and have cheated the depositors and liable to face criminal prosecution.

13. The issue is whether the conclusion recorded in the Auditor’s report is a decision or order. The expression “decision” is of wide connotation and will have to be construed in the background of the relevant provisions of the applicable statute. Considered in the context of Section 81 (5B) of MCS Act, the conclusion of the Auditor amounts to determination of the issues whether there is falsification of account and whether any person is guilty of the offence relating to the accounts. In terms of Section 154 of MCS Act, the expression “decision” and “order” are synonymous and amounts to determination of an issue by the concerned authority. The conclusion of the Auditor determining that there is a falsification of account and fixing the responsibility on the concerned has the trappings of finality mandated by the statute. Notably, the conclusion is not an opinion or view of the Auditor but a final determination entailing stated criminal consequences. The conclusion of the Auditor is in the nature of a command or a direction intended to affect the rights of the parties.

14. The decision of the Auditor under Section 81 of MCS Act charts the further course of action to be taken by the Auditor or in event of his failure by the Registrar. Where in pursuance of the conclusion of the Auditor further actions are mandated by the statutory provisions, the conclusion partakes the character of an order/decision. The conclusion arrived at by the auditor takes the proceeding out of the realm of an ordinary audit report and amounts to an order/decision directing the criminal prosecution which has in fact been lodged by auditor himself. The conclusion itself is an order/decision taken that there is financial fraud which necessitates initiation of criminal action. Such decision can be challenged only before the authorities constituted under the MCS Act.

15. The Revisional Authority has declined to exercise the jurisdiction under Section 154 of MCS for the reason that the auditor’s report is not a decision or order. Under Section 154 of MCS Act the revisional powers can be exercised by the State Government or proceedings of any matter other than those referred to sub section (9) of Section 149, where any decision or order has been passed by any subordinate officer.